The Gold to Silver Ratio: What it’s Telling Us

Have you ever wondered about the relationship between gold and silver prices? 

The prices of these two precious metals have been intrinsically linked together throughout history. The gold-silver ratio describes the relationship between them, specifically as it relates to pricing. Precious metals investors and collectors use it as a tool to help determine the best times to buy and sell gold or silver. 

Let’s explore how the gold-silver ratio works and how you can use it to time your investments. 

What is the Gold to Silver Ratio?

The gold-silver ratio is one of the oldest continuously tracked exchange rates. Most investors follow the ratio because the prices of these precious metals have a well-established correlation. More importantly, they’ve rarely deviated from one another. 

Investors calculate the gold-silver ratio by dividing the current market price of one ounce of gold by the current price of one ounce of silver.  

Gold-Silver Ratio History

Despite its relatively recent substantial fluctuation, the gold-silver ratio has remained fairly steady. The original ratio of 12:1 was devised by the Roman Empire. The ratio reached 14:2:1 in 1305 in Venice, where it stayed level until 1330 when it fell backward to 10:1. The ratio continued to fluctuate until the U.S. government fixed it at 15:1 with the Coinage Act of 1792. This act established the U.S. Mint and laid the foundations for modern currency in the United States. 

What changed the ratio? Explorers and miners discovered massive amounts of silver on the American continent(s). This, in addition to government attempts at gold and silver price manipulation, created the conditions for greater volatility. President Roosevelt set the price of gold at $35 per ounce in 1934, which led the ratio to climb as high as 91:1 in 1939.  

After the end of World War II, the ratio declined in part as foreign exchange rates were pegged to the price of gold. Once the gold standard was abandoned in the 1970s, the ratio declined further. The 1980s saw a rapid rise again as silver prices fell to below $4 an ounce, ultimately peaking at 97.5:1 in 1991

In the 21st century, the ratio has typically stayed within the range of 50:1 and 70:1. Exceptions include a peak of 104.98:1 in 2020 and its lowest point of 35:1 in 2011. 

Why the Gold-Silver Ratio is Important and What It’s Telling Us

The gold-silver ratio is a critical tool that investors and traders use to evaluate the relative value of silver to gold. By indicating how many ounces of silver it takes to buy one ounce of gold, it can function as a broader economic indicator. High ratios often indicate bearish markets for precious metals. Low ratios suggest a bullish one. Investors often use the ratio to determine the best time to buy or sell silver and gold.  

Here’s what it looks like in practice: 

Imagine today’s gold price is $1,899 per ounce. Divide that by today’s silver price, $23.93. This gives us a gold-silver ratio of 79.36. 

In other words, you need almost 80 ounces of silver to buy a single ounce of gold. 

Now that we know what the current gold-silver ratio is, what might it be telling us?  

It may be telling us that silver represents an excellent current value in relation to gold. 

Consider this: Over the last 10 years, the gold-silver ratio has been as low as 31.68 and as high as 83.73. 

At current levels, this ratio is near the highest level documented in the last decade. 

Could the gold-silver ratio continue moving higher, exceeding the highest level seen in the last 10 years? While anything is possible, the current reading could potentially be telling us that silver represents a better long-term value at current price levels.  

That doesn’t mean that gold is a bad value. It does mean that silver could potentially be considered “cheap” right now compared to gold. In this case, buying silver at current levels could potentially see a higher percentage return compared to gold—if the ratio begins to contract. 

How to Use the Gold-Silver Ratio in Your Investment Decisions

If you’re looking to stretch your investment dollars as far as possible, the gold-silver ratio can potentially be a useful tool. A very simple method for using this ratio is buying silver when the ratio is high or appears stretched, and buying gold when the ratio narrows or appears tight. 

Fortunately, this does not need to be an exact science. We believe that buying gold and silver at any price or any ratio level is still a wise investment. You also shouldn’t use the gold-silver ratio as a means of “trading” gold or silver but rather see what may present the best value at current price levels. 

While we believe that the gold-silver ratio may show that silver is the better current value, we also believe silver is an awesome value at current prices. Silver can be purchased right now for almost 70 percent off from its all-time high price. Could silver return to those all-time highs or even exceed those levels? We certainly think so. 

Invest in silver or other precious metals today

Don’t wait for silver prices to go up from recent levels. Act now to acquire physical silver at what could potentially be a huge discount. Speak with an Advantage Gold account executive today. Our precious metals professionals will discuss your options for acquiring physical silver and can even show you how to conveniently use your IRA account to build a physical silver portfolio. 

Talk to an IRA advisor about how to roll over your 401(k) into a Gold IRA byopening a self-directed IRA account, use our contact form or call us at 800-341-8584 today. 

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